A recharacterization is a transaction that allows an IRA owner to “undo” a regular Traditional or Roth IRA contribution and to treat it as though it had been made to the opposite type of IRA.
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The deadline to remove excess contributions and avoid the penalty—removed with the net income attributable (NIA)—is the IRA owner’s tax return due date, plus extensions.
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The deadline for IRA owners to recharacterize or remove their 2022 excess contributions is fast approaching. Typically, the federal tax return extension deadline is October 15. But this year that date falls on a Sunday, so the deadline has been moved to October 16, 2023.
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Although conversions and recharacterizations are fairly common, many who work with IRAs don’t fully understand how they work. We’ll clear up some common misconceptions about these two types of transactions.
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In response to storms in Tennessee, the IRS is allowing an extension of time for affected residents to complete certain time-sensitive tax-related acts.
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The IRS and Department of Labor released tax relief guidance for victims of the severe storms and flooding events in Iowa, Nebraska, and Alabama.
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As a result of tornadoes, storms, and straight-line wind events in Alabama, the IRS has extended the deadline for affected victims to complete certain time-sensitive tax-related acts.
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Both the IRS and Department of Labor have provided their own guidance for tax-related deadline relief to those affected by the wildfires in certain California counties.
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The IRS has updated its list of tax-related time-sensitive acts that may be postponed due to federally-declared disasters or service in the Armed Forces.
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Recharacterizations of conversions and retirement plan-to-Roth IRA rollovers are soon to be a thing of the past. Making clients aware of this change before they convert or roll over could lessen any regret or frustration with these transactions later.
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Tax reform legislation no longer allows taxpayers to undo their IRA conversions and retirement plan rollovers to Roth IRAs, which both have potential for heavy tax hits. Here’s a look at recharacterizations during this 2018 transition year.
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